Canada Life Insurance Co. of Canada v. A.G of Canada, 2015 DTC 5128 [at at 6378], 2015 ONSC 281, rev'd 2018 ONCA 562

In order that the applicant ("CLICC") could realize an accrued capital loss on its 99% limited partner interest in a subsidiary limited partnership ("MAM LP") (and following preliminary dividends):

1. On December 7, 2007, MAM LP distributed an asset to CLICC and a wholly-owned subsidiary of CLICC ("CLICC GP") based on their respective 99% and 1% interests.
2. On December 31, 2007, the interests of CLICC and CLICC GP in MAM LP were cancelled and MAM LP distributed all its remaining property (other than $100 of limited partner capital) pro rata to CLICC and CLICC GP.
3. One hour later, MAM LP was dissolved and immediately thereafter, the remaining $100 of partnership capital was distributed pro rata to CLICC and CLICC GP.
4. At 11:59 p.m., CLICC GP was wound up and its assets and liabilities acquired and assumed by CLICC.
5. CLICC GP was formally dissolved on October 14, 2008.

After CRA assessed to deny the loss claimed by CLICC on the basis that the s. 98(5) rollover applied, the applicant applied for the transactions in 2 to 4 to be rectified so that s. 98(5) could not apply (entailing a distribution on December 31 of some of the partnership property to both CLICC and CLICC GP, a transfer of CLICC's LP interest to CLICC GP, a resulting wind-up of MAM LP into CLICC GP also on December 31, 2007 and the wind-up of CLICC GP into CLICC on April 30, 2008 (i.e., more than 3 months after December 31.)

In granting the requested relief, Pattillo J noted (at para. 39) that "at all material times, CLICC and the other parties…had a continuing specific intention…to create a tax loss…of approximately $168 million" and (at para. 38) that the Attorney General's ("AG's") arguments that rectification was restricted to correcting mistakes in the instruments used to implement a definite and ascertainable tax plan had been rejected in Fairmont.

In response to an AG argument that the proposed rectification transactions contained two more transactions than had occurred in December 2007, CLICC had applied after the hearing of the motion to propose alternative rectification transactions whose only change from the original transactions was to defer the winding-up of CLICC GP from December 31, 2007 to April 30, 2008. As the originally requested rectification relief was granted, this amendment motion was dismissed.

In order that the applicant ("CLICC") could realize an accrued capital loss on its 99% limited partner interest in a subsidiary limited partnership ("MAM LP"):

1. On December 7, 2007, MAM LP distributed an asset to CLICC and a wholly-owned subsidiary of CLICC ("CLICC GP") based on their respective 99% and 1% interests.
2. On December 31, 2007, the interests of CLICC and CLICC GP in MAM LP were cancelled and MAM LP distributed all its remaining property (other than $100 of limited partner capital) pro rata to CLICC and CLICC GP.
3. One hour later, MAM LP was dissolved and immediately thereafter, the remaining $100 of partnership capital was distributed pro rata to CLICC and CLICC GP.
4. Around eight hours later, at 11:59 p.m., CLICC GP was wound up and its assets and liabilities acquired and assumed by CLICC.
5. CLICC GP was formally dissolved on October 14, 2008.

After CRA assessed to deny the loss claimed by CLICC on the basis that the s. 98(5) rollover applied, the applicant successfully applied for the transactions in 2 to 4 to be rectified so that s. 98(5) could not apply (entailing a distribution on December 31 of some of the partnership property to both CLICC and CLICC GP, a transfer of CLICC's LP interest to CLICC GP, a resulting wind-up of MAM LP into CLICC GP also on December 31, 2007 and the wind-up of CLICC GP into CLICC on April 30, 2008 (i.e., more than 3 months after December 31.)

See summary under General Concepts - Rectification.